Modi’s visit a lifeline for French cos

It was surely not just the boat ride on the River Seine with Mr. Modi that left President Hollande looking almost giddy with joy. India’s procurements could rescue two French giants, Dassault Aviation and Areva SA.

It was surely not just the boat ride on the River Seine with Mr. Modi that left President Hollande looking almost giddy with joy. India’s procurements could rescue two French giants, Dassault Aviation and Areva SA.

Dassault Aviation, the manufacturers of the Rafale saw a drop of 17% in consolidated net sales in 2014 first half year. So far, no one other than Egypt wants to buy Rafale fighter jets. Even India almost didn’t want to, until the last minute change of heart.

An off the shelf sales order of 36 Rafales will be a big shot in the arm for the arms dealer. Dassault were so delighted, they issued a statement saying they are “grateful” to the Indian Authorities for acquiring 36 Rafale aircraft rapidly. The right wing newspaper Dassault own, was one of the few to carry a photo of Mr. Modi. The others were content with front page photos of the fighter jet. Dassault Aviation, has been supplying the Indian Air Force with planes since the 1950s (Ouragans) through the 1990s (Mirage 2000s) and now the most expensive fighter jet in the world, the Rafale.

Top government sources have said that a balance will be struck between national security needs and domestic manufacturing. But the PM made no reference whatsoever as to how the 'Make in India' component will be worked out. It's not clear at all whether any fighter jets will be manufactured in India. Reports that Mukesh Ambani was there primarily because of Reliance's interest in defence manufacturing have of course, being doing the rounds.

On the other hand, 87% state owned nuclear giant Areva also recently announced even more significant losses of 4.9 billion euros in 2014. The loss is bigger than Areva’s market value.

Two important announcements regarding the civil nuclear project in Jaitapur were made in Paris in the joint statement made by PM Modi and President Hollande. This multi-billion 9,900 megawatts (MW) project is slated to be the largest in the world. Of late, the excitement around the Areva project has died down for many reasons. The major one being that the techno-commercial discussions between French Areva SA, the Nuclear technology provider and Nuclear Power Corporation of India (NPCIL) who are to build and operate the reactors, remains deadlocked due to inability in closing the gap in price

In Paris, an Industrial techno-commercial collaboration MOU signed between Larson and Toubro (L&T India) and Areva has provided a boost to the collaboration prospects. L&T could get engineering and technical know how from Areva to manufacture critical nuclear components and this could help bring costs down. Anything supplied from Europe is too expensive. It’s not clear if the choice of L&T over other contenders such as Bharat Forge, was made after a joint and impartial evaluation.

The second agreement which, also a boost, is a smaller version of the 2010 early works agreement which was signed but which never took off. This new version allows room for some information to be given from the French side on the engineering aspect of the EPR reactor. This is likely to help the Indian side in understanding the design better, and thus also paving the way for further cost optimisation.

The big challenge of those trying to push the Jaitapur deal is to ensure that the technology and the reactor remains economically viable in the Indian context in order to sell electricity at a competitive rate. For the moment there is a wide gap in the the electricity rate from the French proposal and the Indian rate. Critics of Areva say the EPR reactor is costlier than the indigenous PHWRs as well as Russian reactors and those manufactured by Westinghouse or General Electric (in terms of Rs./MW on capital cost as well as Rs/KWh on power cost). The Areva EPR is a reactor that hasn’t been successfully built nor tried anywhere.

The same EPR that India wants to buy, is also being constructed in France in Flamanville and has been facing huge delays and cost over runs. Only last week the ASN (French nuclear safety authority) released a communiqué saying there is an anomaly in the steel in certain zones of the lid of the reactor vessel. The vessel of a pressurized water reactor is particularly important equipment for safety. It contains the fuel and is involved in the second barrier containment of radioactivity. The lid and the bottom of the tank of the Flamanville EPR are partially spherical shaped forgings and made of steel.

In the meantime, the local opposition to the project in Jaitapur remains strong. Even Shiv Sena leaders, the government's allies, have said that they are opposed to the project from the safety point of view. The liability question cannot be written off easily. With the new arrangement, the kind of cost (electricity) reduction from Rs. 9 + down to Rs. 6+ will mean a substantive part of work to be localized. Critics of the project are worried that it’s very unclear who will hold the liability for an eventual accident. It will not be easy to say whether an India-made component/subsystem has been the root-cause of the accident or one that is Areva-supplied. This could lead to a situation where neither the French nor the Indian side would own responsibility.

“It is premature and risky for India to commit to even 2 EPRs now. No one knows where the EPR projects are headed”, says former Atomic Energy Regulartory Board (AERB) Chairperson, Dr. A. Gopalakrishnan. “If the pre-engineering agreement (PEA) with Areva is only to get a deeper understanding of these issues and to build up technical confidence in India to subsequently get into financial deal & project commitment, I agree with that approach”.

But with serious problems with pressure vessel forgings which have come up in Flamanville, added to the other issues surfaced at the Finland and Chinese sites, not enough clarity is available on the overall safety of the EPR design and the fabrication process. Areva has been hit hard by these troubles.